CARNEY: Now is not the time to raise rates

Bank of England Governor, Mark Carney, delivers a speech to the Bankers and Merchants at The Mansion House in London, Britain June 20, 2017.

source

Reuters/Stefan Wermuth

LONDON
- Bank of England Governor Mark Carney does not believe that it
is time for Britain's central bank to raise interest rates,
despite inflation climbing sharply above target in recent months.

Speaking at London's Mansion House on Tuesday morning, the
governor said that he believes the sclerotic wage growth and
dwindling consumer spending currently impacting the British
economy provide reasons to avoid hiking interest rates, as some
of the bank's most senior officials believe.

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"From my perspective, given the mixed signals on consumer
spending and business investment, and given the still subdued
domestic inflationary pressures, in particular anaemic wage
growth, now is not yet the time to begin that adjustment," Carney
told a gathering of the UK's most prominent financiers in the
speech.

"In the coming months, I would like to see the extent to which
weaker consumption growth is offset by other components of
demand, whether wages begin to firm, and more generally, how the
economy reacts to the prospect of tighter financial conditions
and the reality of Brexit negotiations."

Alongside the more standard concerns about the economy like wage
growth and consumer spending, Carney cited worries about Brexit,
and particularly how Brexit impacts household sentiment, as a
reason for his belief that rates should stay on hold for the time
being.

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"During the negotiating period the economy will be importantly
influenced by the expectations of households, firms and financial
markets about the nature of both the transition and the longer
term economic relationships with the EU and other countries," he
said.

"Markets have already anticipated some of the adjustment.
Depending on whether and when any transition arrangement can be
agreed, firms on either side of the channel may soon need to
activate contingency plans.

"Before long, we will all begin to find out the extent to which
Brexit is a gentle stroll along a smooth path to a land of cake
and consumption," Carney added.

That was the highest number of members to back a hike for some
time and was just one member away from a split vote, a situation
that hasn't occurred since 1998.

Those members who did back a hike cited concerns about inflation
overshooting its government mandated target of 2% substantially
in recent months as their reason for backing a hike, looking
beyond the weaker wage growth and consumer spending cited by
Carney in Tuesday's speech.

Carney himself, whose vote, it should be noted, has the exact
same weight in setting policy as any other member of the MPC,
does not believe that spiking inflation will be sustained,
especially once the value of sterling begins to recover.

The speech was originally intended to be delivered at the annual
Mansion House dinner - one of the biggest events on the social
calendar of the British financial industry - last Thursday, but
the dinner was cancelled as a mark of respect following the
Grenfell Tower disaster earlier in the week. As a result, Carney
and Chancellor of the Exchequer Philip Hammond delivered their
planned speeches on Tuesday morning instead.

At the annual Mansion House event in the City of London on
Tuesday, Hammond effectively attacked this path, calling for "a
deep and special future partnership with our EU neighbours" that
would involve continued trade and immigration.